Blotches
on your credit report cost you. But, don't despair. It's never too late to become
credit worthy -- just get started, and remember that it won't happen overnight.

Here are 5 steps for improving your credit rating:

1. Order your credit reports
Find out what the top three credit bureaus -- Equifax, Trans Union and Experian
-- are saying about you. It's likely that they're all slightly different. Yes,
different! Creditors don't have to report to all three credit bureaus, so they
typically report to the credit bureau to which they also subscribe.

Time and money is wasted, says Steve Rhode, president and co-founder
of Myvesta.org,
if you only order a report from one credit bureau.

Thanks to a new
federal law you'll now be entitled to one free credit report from each of
these credit reporting agencies per year. The program rolled out across the
nation one geographical region at a time with all consumers eligible on Sept.
1, 2005.

The reports will not automatically be sent out. Each consumer
must request their reports one of these three ways. Go to www.annualcreditreport.com,
which is the only authorized source for consumers to access their annual credit
report online for free. Or, call 877-322-8228. Lastly, you may complete the
form on the back of the Annual
Credit Report Request brochure, and mail it to: Annual Credit Report Request
Service, P.O. Box 105281, Atlanta, GA, 30348-5281. One more
caveat: you'll be able to order all three credit reports at one time, or at
different times throughout the year. It's your choice. But, be sure to
order from the centralized agency. If you go directly to the credit reporting
agencies, you will be charged unless you fit another criteria for a free report.

The new ruling doesn't replace the other ways to receive a free
credit report. You're still entitled to a free credit report if: you've been
denied credit, insurance or employment based on your credit report; you're applying
for unemployment or receive public assistance; and you currently reside in a
state that already offers an annual free credit report from each credit reporting
agency (Colorado, Maine, Massachusetts, Maryland, New Jersey and Vermont. Georgia
residents are entitled to two free annual credit reports from each credit reporting
agency.)

You can also order a credit report from each bureau for around
$9.

2. Examine your reports carefully
Nearly every consumer has an error on at least one credit report from one of
the major credit bureaus, says Rhode. Credit bureaus generate your report on
information they receive from your creditors; they don't verify.

Keeping your credit report a true reflection of you is -- like
it or not -- your job. Get ready to clean and polish. Carefully look for everything
from typing errors, outdated and incomplete information to inaccurate account
histories. You'll want to make a thorough list of items you dispute and why.
Be meticulous.

If the negative information in your report is true, only time
and improved habits can change that. Late payments and charged-off accounts
remain on your report for seven years; bankruptcies for 10. Most creditors,
however, look for a pattern of payment rather than focusing on one-time or rare
occurrences; so consistent on-time bill payments will improve those blemishes.

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3. Double-D strategy -- dispute and document
Remember, a bad report costs you money. So, it pays to be thorough! You can
either complete the dispute form provided with your credit report or write
a letter. Clearly identify each mistake and state why it's wrong. A recommendation
is to send a photocopy of your credit report with the mistakes circled to the
reporting credit bureau. Include copies of supporting documents.

Document, document, document. Keep copies and records of all the
forms, letters and documentation that you send the credit bureaus, plus dates
sent. The credit bureau must investigate any relevant dispute within 30 days
of receiving your letter. Any item that is not verified as accurate by a creditor
is removed.

Sometimes it's necessary to contact your creditors to resolve
mistakes. Bankrate's how
to fix your credit report will help you tackle the serious errors.

If the credit bureau makes any changes to your credit file, it
will send you the results and a free, updated copy of your credit report. Once
a negative item is removed from your report, the credit bureau cannot put it
back on unless a creditor verifies its accuracy and completeness -- and sends
you written notice.

4. Solve and dissolve debt
Now's the time to devise
a spending plan that reduces your debt and sets you up to pay on time, every
time.

If you're having difficulty making payments, be proactive. Call
your creditors and negotiate to keep your accounts current and from being reported
as delinquent or "bad debt." You can ask for reduced monthly payments,
or even change due dates to balance out your monthly bills.

The same strategy can be used for fixed-loan payments. Remember,
though, that this is a short-term strategy. You'll pay more interest to extend
the repayment schedule, but it allows you to stay current and save your credit
rating. Use the extra money to pay off debts one at a time, gradually increasing
payments to other debts.

Deal with any collection accounts. Unpaid collections are worse
than paid collections. You can negotiate a pay-off settlement that reduces your
bill, plus demand that all derogatory remarks are removed from your credit report
or at least reported as paid in full. Be sure to get verbal agreements in writing
before sending off your payment.

Slowly close out unneeded or unused credit accounts. Most experts
recommend carrying between two and four major cards. But, be cautious when canceling
because closing accounts can negatively impact your credit score, commonly called
a FICO score. FICO considers the ratio of total debts to total available credit.
A good rule of thumb is to keep your revolving debt to 50 percent of your available
credit.

Remember that cutting up the card doesn't close out the account.
Here's a step-by-step
guide to smartly close out your account.

Other tips:

Close out your newest accounts so that you don't lose your
longer credit history.

Close out accounts slowly over several months.

Verify that all accounts you've closed are reported as "closed
by consumer" for the best report.

5. Add stability to your credit file
You can also work to add positive information and show stability in your credit
file.

You may have been denied credit because of an insufficient credit
file, yet you have credit. Some creditors -- such as, travel, entertainment,
gasoline card companies, local banks and credit unions -- may not report your
credit history to the credit bureaus. You can try asking the credit grantors
to report your account information and monthly payment history to a credit-reporting
agency. Not all will do that. So, in the future, before opening a new account,
ask if your on-time payments will be reported monthly to a credit-reporting
agency, recommends Myvesta.org.

If you have really bad credit -- perhaps even filed bankruptcy
-- don't let your credit status go dormant. "The faster you begin to re-establish
good credit, where you pay on time, every time," says Craig Watts, consumer
affairs manager of the Fair, Isaac and Company, "the faster you'll improve
your credit score."

Build a solid credit history. A secured
credit card offers those with no credit and those repairing their credit
this opportunity. Shop around for the best deal available, but limit your applications.
Credit bureaus look at how many new accounts you've opened, and the number of
"inquiries" for new accounts that are listed. A sudden flurry of "inquiries"
results in a lower score, because many times consumers anticipating money problems
increase their credit lines. Inquiries made by creditors wanting to make "prescreened"
credit offers are not counted.

Lastly, open a savings account at your bank. This shows creditors
that you are working to save and that you have reserves to repay debts.